Except if they get paid cash under the table. Then no taxes are taken out. Do you think the contractors who hire all of those day laborers are taking the required taxes out of the wages that they're paying them? Only a fool would believe that.
Employers who fail to withhold IRS taxes go to prison regularly.
This has happened perhaps a few times in the last 10 years. And you call that regularly?
That's an insignificant part of the economy.
Businesses need steady, dependable employees. The IRS has tables for every category of business showing how much the average labor costs are. If the tax return of the business shows a labor cost that is too far below the industry average an audit is triggered.
Failure to pay withholding taxes is routinely prosecuted and employers are commonly given hard time. The IRS doesn't even care about the immigration status of the employees.
You are probably thinking of prosecutions of employers for hiring illegals, not IRS prosecutions for failure to pay withholding taxes, filing false tax returns, tax evasion, etc.. that don't have anything to do with immigration laws, even if the employees were illegal.